Chrysler Takes a New Purchasing Approach with Suppliers

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Well, its not really a new approach but an old approach revised and perhaps watered down (though we think it has far more merits than most previous approaches). According to this article in Automotive News, Dan Knott, the fifth CPO to head up Chrysler’s purchasing operations in three years, has implemented a program called “SUPER (Supplier Product Enhancement Reward) which awards suppliers with 50% of the first year’s cost savings of any cost cutting innovation generated by the supplier (all subsequent years savings go to Chrysler). Will this new initiative signal a turnaround in historically confrontational automotive OEM supplier relations?

We’ll get to that in a minute.

In the 1990’s Chrysler implemented an extremely successful program called SCORE that essentially also rewarded suppliers who generated cost reduction ideas and strategies. Apparently, according to the article, SCORE “remains the yardstick for enlightened supplier relations. Led by Tom Stallkamp (one of the most fabulous public speakers I have had the privilege of hearing), SCORE helped restore Chrysler’s reputation in the eyes of its supply base. The merger of Daimler set the company in motion for a more traditional confrontational/combative supplier relationship management approach. The current approach seems to have met with some success. For example, according to the article, Chrysler has cut the number of days suppliers who have a dispute with Chrysler must wait for payment from 287 to 95. Another aspect of the SUPER program involves reducing warranty claims that have fallen 46% since 2007 according to the article. The program rewards suppliers who achieve a 12% reduction in PPM (defects, parts per million). If warranty claims meet or exceed Chrysler’s target, then the supplier gets paid for any warranty claims. If the supplier does not reach the target, then he will be subject to warranty claim costs.

But not everyone thinks the new program has merits. One CFO of a major supplier, according to Automotive News, didn’t care for the 50% cost savings number, particularly when design changes could result in substantial new tooling charges (which are often amortized over the life of a program).

The Automotive News article gives a lashing to John Campi, the former CPO of Chrysler (and former CPO of the Home Depot) saying, “he [Campi] proclaimed a new era of collaboration when Nardelli brought him to Chrysler in early 2008 during the Cerberus regime…, yet according to John Henke, president of Planning Perspectives Inc a consulting firm, “Campi clearly destroyed any vestiges of decent relations that existed at that point. We’d argue that claim may not be entirely fair (see this post John Campi contributed to sister site Spend Matters last year).

Will SUPER bring in a new era of collaboration and “Kumbaya with suppliers? We’ll say it’s a step in the right direction for surely friendly supplier relations will take a company a whole lot further than combative relations. But the Big 3 automakers have far more issues than just purchasing or sourcing strategy and approaches. Reducing part complexity, streamlining supply chain management, simplifying manufacturing and assembly operations as Campi suggests also play a role in more effective supplier relationship management.

Dan Knott has an uphill battle but it sounds like he is moving the needle in the right direction.

–Lisa Reisman

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